The pace of U.S. corporate transactions among publicly held companies would pick up for the right price, according to speakers at the fourth annual A&D Strategies and Opportunities conference in Dallas recently. "If (potential corporate sellers) would just cooperate with us, we could make a deal," quipped Mike Taylor, vice president, corporate development, for Comstock Resources Inc. The conference, hosted by Oil and Gas Investor magazine and A&D Watch newsletter, was attended by more than 300 professionals involved in mergers and acquisitions. With E&P stock prices up, however, "everyone seems expensive," Taylor noted. The pace of U.S. corporate transactions in the upstream space slowed since 2002 to involve only a handful of such deals, including the Devon Energy Corp. and Ocean Energy Inc. merger in early 2003, the Plains E&P Co. and Nuevo Energy merger in early 2004, and a series of Rockies-focused mergers. Otherwise, most deals have been asset-only in structure or they involved public-company purchases of private companies. Glen Mizenko, vice president, business development, for Forest Oil Corp. said Forest looks at potential corporate transactions but "they're hard to do." In the past two years, Forest has restructured its portfolio to be North America-focused: some 43% of its portfolio is new. (For more on this, see "Out of the Woods," Oil and Gas Investor, September 2005.) "We've changed a lot in a very short period of time. We've developed growth engines and hope to develop more growth engines through acquisitions," Mizenko said. Most of Forest's recent acquisitions have been asset-only in structure and in North America. (For information on its latest deal, see "Company Briefs" in this issue.) Bob Heinemann, president and chief executive officer of Berry Petroleum Co., said, "Acquisitions (of any kind) are not for the faint of heart...You really have to be convinced the world has changed." The century-old Berry Petroleum has expanded outside its southern California core business into Utah (the Brundage Canyon) and into the Denver-Julesburg Basin in Colorado. "Acquisition opportunities in California were limited," he said. It is also now in a joint venture with Bill Barrett Corp. in the D-J Basin involving acreage in Colorado, Nebraska and Kansas. A few years ago, 100% of Berry's reserves were Californian heavy oil; today, 77% are heavy oil, 8% light oil and 15% gas. Chevron Corp.'s recent purchase of Unocal Inc. was structured as a corporate transaction. Heinemann said it is an interesting, bellwether deal. "Strategically, it was a great fit for Chevron." At the time of the sale, Unocal was being better managed, which allowed a prospective buyer to better understand the value of Unocal's assets, Heinemann said. Mizenko said Chevron's assumption of Unocal's assets will be good for the assets. "Where we have a relationship with Unocal, that can only be improved in the future," he said. Adam Waterous, vice chairman and president of Calgary-based M&A advisory firm Scotia Waterous, said the Canadian energy trusts are very interested in U.S. assets, particularly long-life packages, such as Spraberry oil in West Texas and Hugoton gas in western Oklahoma and southwestern Kansas. "If those assets had been in Canada, they would have been bought by royalty trusts a long time ago," Waterous said. Some western Canadian deal values appear odd today, he added. Reports say some buyers are not discounting the present value of reserves to be acquired. "Zero percent is hard to explain." Sometimes it just isn't pointed out. "I've never seen a press release that talks about discount rates," he said. Corporate opportunities with impact are very tough to execute, and even asset opportunities are tough to come by, although the latter will be the main venue for acquisition and divestiture activity, said Art Smith, chairman of John S. Herold Inc. Smith said it doesn't seem to make a difference if an acquirer is a serial buyer or an episodic one. "Per-share results are what really matter," he said.

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